Sunday, June 7, 2009

Is there a grain shortage?

Doing a Google search on "wheat shortage" will give you something to think about. But what do you need think? Is there a growing wheat shortage? What about the other grain products? In my last post I discussed the general market forces that influence commodity pricing. As an illustration, here is a quote from a commodities blogger back in June of 2008:
We mentioned in the spring that after the historic rise in wheat [Feb 8: Wheat is the new Corn], farmers would be planting a ton of this product in 2008 to take advantage of those prices, and moving away from corn. [Mar 31: USDA Crop Report] That's exactly how things played out [Apr 3: Corn Jumps to $6 - Start Stocking up on Soda Pop]... and wheat prices dipped (dipped is being kind, it's more like shellacked) on expectations of a huge crop later this year. Since both ETFs/ETNs above have wheat and soybeans in their holdings they have returned only 7-8% in the trailing 6 month period (mostly due to the pain from wheat since its spike). So 43%.... vs 7-8%. That makes a huge difference.With that said, wheat has been cut nearly in half from its "bubble" highs and really is it that hard to guess whats going to happen next spring?
So if you look closely at the results of your Google search, you will see that the myriad of articles on wheat shortages date from 2008 or before. If you keep looking you will not find anything on a current, that is, 2009 shortage. Why? Because as the trader pointed out, farmers reacted to the increased prices and planted more wheat. You can see another updated chart at the beginning of this post. The contract size for wheat is 5,000 bushels which is appx. 136 metric tons. The pricing unit is cents per bushel. The settlement procedure is physical delivery, (so unless you really want tons of wheat delivered to your door, you had better know what you are doing).

So, is there a current wheat shortage? The answer is a simple one -- No. Is wheat more expensive than it has been in the past? Probably yes depending on the time frame. Online sources for wheat are running about $40 to $50 a bucket. For us locally, Costco had wheat in 40 lb. buckets for $30.

It is easy to get caught up in reacting to problems that don't really exist. Take your time and search out the facts.

1 comment:

Anonymous said...

Thanks for posting this level-headed examination of the subject of the wheat "shortage." I too have been reading on various blogs about the impending wheat shortage and at first I must admit that the tone of near panic on some blogs did rub off on me a bit. But then when I started doing internet searches, like you I could only find information from 2008 and before.

Many of the blogs seem to be drawing their information from those old articles and from the fact that Oklahoma and Texas have experienced wide-spread crop failure this spring. But the growing season in most of the rest of the country is not far enough advanced to make any kind of reliable prediction about whether or not there will be a shortage (either here in the US or Canada or other parts of the world.)

So I've just decided to continue to prepare and add to our food storage in an organized fashion.